Transformation of mammoth proportions: Auto Scrap policy on the anvil

The explosive growth in the automobile manufacturing industry in India has been grabbing eye balls from around the globe as it went from 24 million in FY16 to 25.3 million in FY17. However, amidst talks of huge potential in the Indian auto motive space there has been an important element of the production cycle that has gone fairly unnoticed, scrapping of end of life vehicles (ELV).

The number ELVs have simultaneous increased at a similar pace in the past few years raising serious environmental concerns. At present a fraction of total ELVs are processed for scrap and mostly end up in local unregulated chop shops where they are sold part by part for reuse. As opposed to India, in developed economies with stringent metal recycling policies such as USA, the number of ELVs being scrapped are almost equal to the number of vehicles being manufactured annually, generating an estimated 22 billion worth of economic activity.

In the absence of stringent norms and a virtual policy paralysis, the unregulated automotive scrap industry in India has assumed mammoth proportions, spanning across the length and breadth of the country. From local chop shops to industrial scale scrap traders, auto mobiles are being traded for spare parts and steel in almost every major city in India.

According to Society of Indian Automobile Manufacturers (SIAMS) there are more than 30 million cars that were manufactured between 1990 and 2000 and can be considered to be in the end of life period. A regulation in this space could see as many as 28 million vehicles going off road and has the potential to generate about INR 320 billion worth scrap.

Experts unanimously acknowledge the urgent need for a recycling policy to be brought forth especially considering the benefits of developing the secondary steel sector. According to Alekh Tiwari an expert in the field of auto scrap recycling and Director at KPMG India “organized metal scrap recycling offers significant potential for energy and natural resource conservation besides being a valuable economic source for a nation. For instance USA, with a scrap recycling industry that generates ~USD 105 Billion in economic activity, is a net exporter of scrap, with high recycling rates of 80-90%. In contrast, India is a net importer of scrap and the overall recycling rate in India is less than 20%”.

Tiwari also believed that, “. To leverage the full potential of available metal scrap in our country, it is imperative that an approach and framework be created to manage the entire value chain of metal scrap in our country and channelize the same from unorganized to organized route. A policy will ensure reduction in scrap and metal imports, thereby reducing trade deficits and processing of metal scrap in an organized, safe and environmentally efficient manner. Moreover, implementation of this metal recycling policy will also align with key government policies such as Swachh Bharat, Make in India and Smart cities development.”

With a view to regulate the multibillion dollar industry, the Government has since long been contemplating on a metal recycling policy to set up systematic shredding plants and channelize the flow of ELVs to these plants. President of the Metal Recycling Association of India (MRAI) Sanjay Mehta opines that key to the formulation and subsequent implementation of the scrap recycling policy is the participation of manufacturers. “The channel to draw ELVs to shredding plants would have to be under taken through a Private Public Partnership (PPP) model where manufacturers can facilitate the process through buy backs etc” Mehta asserted. He also informed that MRAI has been in talks with NITI Ayog and suggesting measures to adopt industry best practices from around the globe. According to Mehta, It is being estimated that the policy may be completed by November-December; however the country wide implementation of the plans and policy would take at least 8 to 10 months.

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